<PAGE>
MBL GROWTH FUND, INC.
To Our Shareholders and Variable Annuity Participants:
For the twelve months ending December 31, 1998, MBL Growth Fund returned 23.5%
after expenses versus the Standard & Poor's 500 Index (the "S&P 500") return of
28.6%. The S&P 500 is a generally accepted index of unmanaged securities. The
analysis that follows this letter was prepared by Markston Investment Management
(the Fund's investment adviser) and discusses the various factors that
contributed to the Fund's performance.
UPDATE ON ORGANIZATIONAL DEVELOPMENTS
As we reported via a "sticker" supplement to your MBL Growth Fund prospectus
dated August 6, 1998, MBL Life Assurance Corporation ("MBL Life"), the Fund's
sponsor, entered into a transaction to sell substantially all of its life
insurance and annuity businesses to Anchor National Life Insurance Company, a
subsidiary of SunAmerica Inc. (the "Transaction"). The Transaction received all
necessary regulatory approvals and became effective on December 31, 1998.
The Transaction did not include the Separate Accounts of MBL Life, including the
VCA-2 and VCA-3 Separate Accounts which were the primary investors in MBL Growth
Fund. As part of the wind-down of MBL Life's operations, the Separate Accounts
are to be terminated and dissolved on or about June 30, 1999.
In a letter to VCA-2 and VCA-3 participants dated February 10, 1999, MBL Life
reported that, as an interim measure, it was redeeming the VCA-2 and VCA-3
investments in MBL Growth Fund and reinvesting the proceeds in the Dreyfus Stock
Index Fund. This substitution, which received all necessary regulatory
approvals, was made on February 17, 1999 in order to allow the Separate Accounts
to be invested in a manner consistent with their investment objectives, while at
the same time being able to respond to all redemption requests. We ask that you
refer back to the February 10, 1999 letter from MBL Life for more information on
the substitution.
In light of this significant withdrawal, the Fund's Board of Directors must
consider whether it is economically viable for the Fund to continue in
existence, and may well decide that the Fund should be terminated.
In conjunction with recent events, the Fund's two interested directors, William
G. Clark and I, resigned as directors in January, 1999. Both Mr. Clark and I
continue to serve as officers of the Fund, and will do our utmost to assure the
Fund's ability to pursue plans for dissolution or ongoing operations.
Thank you for your support of the Fund over the years. We wish you success in
pursuing new financial relationships.
Sincerely,
/s/ KATHLEEN M. KOERBER
KATHLEEN M. KOERBER
PRESIDENT
February 19, 1999
<PAGE>
REPORT OF THE INVESTMENT ADVISER
Dear Shareholders and Variable Annuity Participants:
Under Markston's management, the MBL Growth Fund returned 23.5%, after expenses,
during 1998.
Our best performers for the full year were National Computer Systems, CVS,
Pharmacia & UpJohn, Harte-Hanks, Vulcan Materials and Access Health.
NATIONAL COMPUTER SYSTEMS appreciated 109% during the year. This leading
educational service provider has been an important beneficiary of the nationwide
program to test school children statewide and to measure the effectiveness of
the education they have received. In our view, Wall Street is finally beginning
to recognize National Computer Systems as a very well run consistent grower.
CVS appreciated almost 72% for the year and contributed nicely to overall
portfolio performance. The stock enjoyed price earnings multiple expansion as
management successfully integrated the Revco and Arbor stores into the CVS
format, and continued to post strong same store sales growth on rising margins.
PHARMACIA & UPJOHN appreciated 54% for the full year. This occurred as it became
apparent that the cultural change fostered by Fred Hassan, the relatively new
CEO, was having positive results. During the year, Detrol and Xalatan emerged as
major growth products. This, in turn, supported substantially improved
pharmaceutical sales growth in the second half of the year. In addition, the new
management acquired rights to five promising new compounds which promises a
filling out of the product pipeline. The company's organizational structure was
also materially simplified during the year.
HARTE-HANKS had an above average year partially because of participation in the
Internet frenzy, which gripped the stock market at year-end. Harte-Hanks' direct
marketing services group can offer clients extensive Internet support. Other
factors helping performance were the rebound in the financial markets, which
helps Harte-Hanks' mutual fund support services. Also helping were earnings that
exceeded expectations.
VULCAN MATERIALS also had an above average year. We attribute this to the warm
winter, which helped construction activity, which in turn kept demand for
aggregates robust. The stock also benefited from an announcement that Vulcan
would acquire CalMat, a West Coast aggregates supplier with materially lower
margins than Vulcan. This reinforces Vulcan's position as the largest and only
true nationwide supplier of high performance aggregates as the expanded national
road building program begins to take effect. Vulcan's demonstrated ability to
raise margins makes the CalMat acquisition particularly interesting.
ACCESS HEALTH posted good appreciation for the year largely because it agreed to
merge with HBO & Company which in turn agreed to merge with McKesson. Access had
been a rapidly growing supplier of nurse triage services run by a former West
Pointer who had been first in his class. Its margins had been well above
average. The enterprise's longer term question was whether it could sustain its
high margins while its HMO customers were running barely above break even.
Merger with a substantially larger entity provided a graceful solution to the
puzzle.
Our poorer performers for the full year were Pennzoil, Minnesota Mining &
Manufacturing and National Service Industries.
During 1998 PENNZOIL was hurt by low commodity prices and some disappointing
exploration projects in the Caspian Sea. We believe the combination of
Pennzoil's motor oil business with Quaker State will be a positive in 1999.
Nevertheless, we will continue to monitor this situation.
2
<PAGE>
MINNESOTA MINING & MANUFACTURING underperformed in 1998 due to poor results in
Asian markets and very modest growth in the U.S. Margins remain above average
and the company is restructuring to protect profitability. Restructuring efforts
include the spin-off of Imation, which included several no growth businesses, as
well as continued headcount reductions. This is supplemented by continuing stock
repurchase, which has modestly shrunk the total number of shares outstanding
each year for the last several years.
NATIONAL SERVICE INDUSTRIES underperformed because of disappointing earnings.
The company has new management headed up by a former partner at McKinsey. New
middle managers are in place, as is a new compensation program. The company's
product lines are relatively mundane, however, and subject to lower margins as
growth is pursued. The stock has an above average yield. We have been waiting to
see what the new culture at the company will deliver.
Sincerely,
/s/ MICHAEL J. MULLARKEY
MICHAEL J. MULLARKEY
Managing Director
MARKSTON INVESTMENT MANAGEMENT
February 19, 1999
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE MBL GROWTH FUND
AND THE STANDARD & POOR'S 500 INDEX
FOR THE TEN YEAR PERIOD ENDED DECEMBER 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C>
23.47% 22.65% 18.38%
MBL Growth Fund S&P 500
1988 $10,000 $10,000
1989 $12,851 $13,160
1990 $12,166 $12,752
1991 $14,929 $16,629
1992 $17,119 $17,892
1993 $19,476 $19,700
1994 $19,891 $19,958
1995 $26,803 $27,448
1996 $33,388 $33,750
1997 $43,777 $45,009
1998 $54,053 $57,935
</TABLE>
THE GRAPH ABOVE DEPICTS THE PERFORMANCE OF MBL GROWTH FUND VERSUS THE STANDARD &
POOR'S 500 INDEX (AN UNMANAGED INDEX OF STOCKS CONSIDERED REPRESENTATIVE OF THE
OVERALL STOCK MARKET). IT IS IMPORTANT TO NOTE THAT MBL GROWTH FUND IS A
PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEX IS NOT AVAILABLE FOR
INVESTMENT, IS UNMANAGED AND IS SHOWN FOR COMPARISON ONLY.
THIS GRAPH ASSUMES AN INITIAL INVESTMENT OF $10,000 AS WELL AS REINVESTMENT OF
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. THIS FUND IS ONLY AVAILABLE FOR
PURCHASE BY INSURANCE COMPANY SEPARATE ACCOUNTS. DEDUCTIONS AND CHARGES,
INCLUDING SALES CHARGES, APPLICABLE TO THE VARIOUS INSURANCE PRODUCTS THAT
INVEST IN THE FUND, ARE NOT REFLECTED IN THIS GRAPH. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS
THAN WHEN ORIGINALLY PURCHASED.
4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
MBL Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MBL Growth Fund, Inc. (the "Fund")
at December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
As discussed in Note F of the notes to financial statements, on February 17,
1999, substantially all of the outstanding shares of the Fund were redeemed.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 11, 1999,
except as to Note F,
which is as of
February 17, 1999
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
MBL GROWTH FUND, INC.
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments:
Common stocks (cost $42,809,567)................................. $61,998,336
Preferred stocks (cost $163,798)................................. 426,618
Corporate bond (cost $30,429).................................... 5,355
Short-term investments (cost $1,995,271)......................... 1,995,271
-----------
64,425,580
Cash............................................................... 47,179
Receivable from distributor........................................ 29,326
Dividends receivable............................................... 54,539
Other assets....................................................... 14,669
-----------
Total Assets............................................... 64,571,293
-----------
LIABILITIES
Payable for Fund shares redeemed................................... 387,255
Accrued investment advisory fee.................................... 69,164
Accounts payable and accrued expenses.............................. 50,958
-----------
Total Liabilities.......................................... 507,377
-----------
Net Assets................................................. $64,063,916
-----------
-----------
NET ASSETS
Capital stock (4,904,549 shares of $1.00 par value capital stock
outstanding, 21,000,000 shares authorized)....................... $ 4,904,549
Paid-in capital.................................................... 38,529,793
Accumulated undistributed net investment income.................... 33,032
Accumulated undistributed net realized gain from security
transactions..................................................... 1,170,027
Net unrealized appreciation of investments......................... 19,426,515
-----------
Net Assets................................................. $64,063,916
-----------
-----------
Net asset value, offering price, and redemption price per share
($64,063,916 DIVIDED BY 4,904,549 shares of
capital stock outstanding)....................................... $13.06
-----------
-----------
</TABLE>
See notes to financial statements.
STATEMENT OF OPERATIONS
MBL GROWTH FUND, INC.
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
Dividends..................................................................... $ 832,820
Interest...................................................................... 267,881
------------
1,100,701
Expenses:
Investment advisory fee....................................................... $ 278,389
Custodian..................................................................... 70,713
Legal......................................................................... 63,262
Audit......................................................................... 34,438
Insurance expense............................................................. 23,190
Transfer agent................................................................ 19,903
Directors' fees............................................................... 14,000
Printing...................................................................... 12,440
Miscellaneous................................................................. 4,159
Filing fees................................................................... 1,589
------------
522,083
------------
Less expenses reimbursed by distributor......................................... (35,181) 486,902
------------
------------
Net Investment Income................................................... 613,799
------------
Realized and Unrealized Gain on Investments:
Net realized gain from security transactions.................................. 7,549,161
Increase in unrealized appreciation of investments............................ 4,738,906
------------
Net Gain on Investments..................................................... 12,288,067
------------
Net Increase in Net Assets Resulting from Operations........................ $ 12,901,866
------------
------------
</TABLE>
6
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
MBL GROWTH FUND, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income........................... $ 613,799 $ 549,147
Net realized gain from security transactions.... 7,549,161 8,153,532
Increase in unrealized appreciation of
investments................................... 4,738,906 5,261,720
------------ ------------
Net Increase in Net Assets Resulting from
Operations.................................. 12,901,866 13,964,399
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income............ (623,602) (540,838)
Distributions from net realized gain from
security transactions......................... (7,711,962) (6,913,083)
------------ ------------
Total Distributions to Shareholders........... (8,335,564) (7,453,921)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Net increase in net assets from capital share
transactions.................................. 2,076,180 4,919,413
------------ ------------
Net Increase in Net Assets.................... 6,642,482 11,429,891
NET ASSETS
Beginning of year............................... 57,421,434 45,991,543
------------ ------------
End of year (including undistributed net
investment income of $33,032 and $42,835,
respectively)................................. $64,063,916 $57,421,434
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
7
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS
MBL GROWTH FUND, INC.
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (96.78%)
CONSUMER NON-DURABLES (6.59%)
55,119 Archer Daniels Midland Co.............................. $ 947,358
8,900 Coca-Cola Co........................................... 595,187
13,900 Loewen Group, Inc...................................... 117,281
20,100 National Service Industries, Inc....................... 763,800
35,800 Pennzoil-Quaker State Co............................... 530,288
3,300 Pepsico, Inc........................................... 135,094
7,600 Quaker Oats Co......................................... 452,200
17,800 Ralston Purina Co...................................... 576,275
6,200 Tupperware Corp........................................ 101,913
-----------
4,219,396
-----------
ENERGY (2.44%)
12,000 Amoco Corp............................................. 708,000
6,214 Apache Corp............................................ 157,292
35,800 PennzEnergy Co......................................... 583,988
6,980 Petroleum Helicopters, Inc., non-voting................ 113,425
-----------
1,562,705
-----------
FINANCIAL SERVICES (11.31%)
39,467 Allmerica Financial Corp............................... 2,284,153
15,500 American Express Co.................................... 1,584,875
9,300 Argonaut Group, Inc.................................... 227,850
6,600 Bankers Trust New York Corp............................ 563,887
17,168 First Union Real Estate Equity & Mortgage
Investments.......................................... 100,862
13,900 Health Care Property Investors, Inc.................... 427,425
23,016 IRT Property Co........................................ 230,160
11,000 Northern Trust Co...................................... 959,750
9,700 Reliance Group Holdings, Inc........................... 124,888
14,600 Safeco Corp............................................ 626,888
3,400 T. Rowe Price Associates, Inc.......................... 115,175
-----------
7,245,913
-----------
HEALTH CARE (14.24%)
9,100 Biogen, Inc.*.......................................... 754,162
76,560 HBO & Co............................................... 2,196,315
15,600 Humana, Inc.*.......................................... 277,875
7,000 Johnson & Johnson...................................... 587,125
32,500 Medpartners, Inc.*..................................... 170,625
64,400 Pharmacia & Upjohn, Inc................................ 3,646,650
27,000 Schering-Plough Corp................................... 1,491,750
-----------
9,124,502
-----------
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
INDUSTRIAL (13.28%)
3,400 Boeing Co.............................................. $ 110,925
3,000 Calmat Co.............................................. 92,625
7,600 Commscope, Inc.*....................................... 127,775
7,100 Cummins Engine, Inc.................................... 252,050
300 Great Lakes Chemical Corp.............................. 12,000
7,700 IMC Global, Inc........................................ 164,587
15,200 Lone Star Industries, Inc.............................. 559,550
7,000 Louisiana-Pacific Corp................................. 128,187
31,700 Minnesota Mining & Manufacturing Co.................... 2,254,663
21,600 Morgan Products Ltd.*.................................. 75,600
34,500 Ogden Corp............................................. 864,656
5,500 Union Pacific Resource Group, Inc...................... 49,844
14,800 Valspar Corp........................................... 552,225
24,800 Vulcan Materials Co.................................... 3,262,750
-----------
8,507,437
-----------
MEDIA/ENTERTAINMENT/LEISURE (11.54%)
60,000 ACNielsen Corp.*....................................... 1,695,000
7,500 Dun & Bradstreet Corp.................................. 236,719
18,800 Eastman Kodak Co....................................... 1,353,600
69,500 Harte-Hanks, Inc....................................... 1,980,750
1,050 Hasbro, Inc............................................ 37,931
6,100 Information Resources, Inc.*........................... 61,762
5,200 Mattel, Inc............................................ 118,625
8,200 MediaOne Group, Inc.*.................................. 385,400
20,800 Nelson, Thomas Inc..................................... 280,800
7,800 Time Warner, Inc....................................... 484,088
13,500 Times Mirror Co., Series A............................. 756,000
-----------
7,390,675
-----------
MISCELLANEOUS (1.38%)
12,200 Catalina Marketing Corp.*.............................. 834,175
6,100 Reading Entertainment, Inc.*........................... 47,275
-----------
881,450
-----------
RETAIL (11.40%)
49,480 Burlington Coat Factory Warehouse Corp................. 807,142
12,600 Burlington Industries, Inc............................. 138,600
73,342 CVS Corp............................................... 4,033,810
25,356 Cash America International, Inc........................ 385,094
42,500 Charming Shoppes, Inc.*................................ 177,969
6,800 Hartmarx Corp.*........................................ 38,250
7,200 Meyer, Fred Inc.*...................................... 433,800
29,900 Oshkosh B'Gosh, Inc., Class A.......................... 601,738
44,400 Vicorp Restaurants, Inc.*.............................. 688,200
-----------
7,304,603
-----------
</TABLE>
8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS -- CONTINUED
MBL GROWTH FUND, INC.
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
TECHNOLOGY (18.90%)
11,300 3-D Systems Corp.*..................................... $ 84,750
6,700 AMP Inc................................................ 348,819
18,000 Arrow Electronics Inc.................................. 480,375
46,500 Avid Technology, Inc.*................................. 1,086,937
100 Avnet Inc.............................................. 6,050
37,100 Checkpoint Systems, Inc.*.............................. 459,112
1,100 Cirrus Logic, Inc.*.................................... 10,725
6,000 EDS Corp............................................... 301,500
12,500 Glenayre Technologies, Inc.*........................... 54,687
61,900 Global Directmail Corp.*............................... 1,446,912
34,500 Motorola, Inc.......................................... 2,106,656
112,600 National Computer Systems, Inc......................... 4,138,050
12,400 National Semiconductor Corp............................ 167,400
2,820 Northern Telecom Ltd................................... 141,353
12,400 Seagate Technology, Inc.*.............................. 375,100
17,000 Shared Medical System Corp............................. 847,875
2,600 Triquint Semiconductor, Inc.*.......................... 50,375
-----------
12,106,676
-----------
UTILITIES (5.70%)
19,500 Cinergy Corp........................................... 670,312
52,743 Houston Industries, Inc................................ 1,694,369
12,000 Northwest Natural Gas Co............................... 309,000
7,000 Piedmont Natural Gas, Inc.............................. 252,875
7,401 Sprint Corp............................................ 622,609
3,700 Sprint PCS*............................................ 85,563
1,500 Unisource Energy Corp.*................................ 20,251
-----------
3,654,979
-----------
TOTAL COMMON STOCKS.................................... 61,998,336
-----------
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
PREFERRED STOCKS (0.66%)
MEDIA/ENTERTAINMENT/LEISURE (0.60%)
15,622 News Corp. Ltd., limited voting*....................... $ 385,668
-----------
MISCELLANEOUS (0.06%)
5,200 Craig Corp., Class A*.................................. 40,950
-----------
TOTAL PREFERRED STOCKS................................. 426,618
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
CORPORATE BOND (0.01%)
$ 119,000 Boston Chicken, 7.75% conv. sub. deb., due May 1,
2004*(a)............................................. 5,355
-----------
SHORT-TERM INVESTMENTS (3.11%)
2,000,000 U.S. Treasury Bills, 3.95% to 4.44%, due January 7 to
21, 1999............................................. 1,995,271
-----------
TOTAL INVESTMENTS (100.56%)............................ 64,425,580
Liabilities in excess of other assets (-0.56%)......... (361,664)
-----------
NET ASSETS (100.00%)................................... $64,063,916
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
(a) Issuer in bankruptcy.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the total net assets of the Fund.
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MBL GROWTH FUND, INC.
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
MBL Growth Fund, Inc. (the "Fund") is a diversified, open-end, management
investment company registered under the Investment Company Act of 1940, as
amended.
The Fund functions as the investment vehicle for certain variable annuity
contract accounts of MBL Life Assurance Corporation ("MBL Life") which are unit
investment trusts ("Separate Accounts") registered under the Investment Company
Act of 1940, as amended (see Notes C and F). Significant accounting policies of
the Fund are as follows:
INVESTMENTS: Investments, except for short-term investments which are stated at
amortized cost which approximates market value, are valued at closing prices on
national securities exchanges. Securities traded on a national securities
exchange for which there are no sales on the valuation date and securities
traded over-the-counter are valued at closing bid prices. Investment security
transactions are recorded on the date of purchase or sale. Realized gains and
losses on investment transactions are determined on the basis of identified
cost.
FEDERAL INCOME TAXES: The Fund does not provide for federal income taxes since
it intends to continue to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code by distributing each year
substantially all of its taxable net income and net realized capital gains to
its shareholders. Income dividends and capital gain distributions are determined
in accordance with Federal income tax regulations which may differ from
generally accepted accounting principles. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes, but not for tax purposes, are reported as distributions in
excess of net investment income and distributions in excess of net realized
capital gains.
DIVIDENDS AND INTEREST INCOME: Dividends from investment securities and
dividends to shareholders are recorded on the ex-dividend date and interest is
accrued as earned. Discounts or premiums on debt securities purchased are
accreted or amortized to interest income over the lives of the respective
securities.
ESTIMATES: The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE B -- INVESTMENT ADVISORY AND SERVICE AGREEMENTS
The Fund has investment advisory and service agreements with Markston Investment
Management ("Adviser"), a partnership between Markston International, Inc.
("Markston") and MBL Sales Corporation ("MBL Sales"). Markston is a 49% general
partner of Adviser, and MBL Sales is a 51% general partner. MBL Sales is a
wholly-owned subsidiary of MBLLAC Holding Corporation, which is a wholly-owned
subsidiary of MBL Life. Under the investment advisory and service agreements,
the Fund pays Adviser a periodic fee (basic fee) at the annual rate of .50% of
the first $200,000,000 of the Fund's net assets, .45% of the next $100,000,000
of such value, .40% of the next $100,000,000 of such value, and .35% of such
value in excess of $400,000,000. The basic fee may be adjusted by an amount
determined according to a formula based on the Fund's performance in relation to
the Standard & Poor's 500 Index ("Index"). The formula provides for a weekly
increase or decrease in the basic fee by an amount equal to .05% of net assets
per annum for each full two percentage points that the Fund's investment
performance, over a 24-month period, is better or worse than
10
<PAGE>
NOTE B -- INVESTMENT ADVISORY AND SERVICE AGREEMENTS -- CONTINUED
that of the Index. The maximum adjustment is .30%. The fee is computed and
accrued daily and paid quarterly. For the year ended December 31, 1998, the
basic advisory fee amounted to $305,941. The actual fee amounted to $278,389
which reflected a downward performance adjustment of $27,552.
In addition, the Fund has a distribution agreement with First Priority
Investment Corporation ("FPIC") a wholly-owned subsidiary of MBLLAC Holding
Corporation.
The compensation of each disinterested director is paid by the Fund at the rate
of $400 per meeting attended, plus an annual retainer of $1,200. Aggregate fees
paid during the year to the Fund's disinterested directors amounted to $11,600.
The officers of the Fund are either officers or employees of MBL Life. The
compensation of the officers and any employees of the Fund affiliated with
Adviser or FPIC is paid by the affiliated entities.
NOTE C -- RELATED PARTY TRANSACTIONS
At December 31, 1998, MBL Life owned 106,041, or 2% of the outstanding shares of
the Fund. In addition, 4,798,508, or 98% of the outstanding Fund shares are held
by MBL Life's Separate Accounts for the benefit of variable annuity
contractholders.
On December 31, 1998, MBL Life sold substantially all of its general account
life insurance and annuity business to SunAmerica Inc. (the "Acquisition"). The
business sold did not include the Separate Accounts. The Acquisition along with
the Order of the Superior Court of New Jersey (the "Order") approving the
transaction effected a resolution to the proceedings associated with the Plan of
Rehabilitation of the Mutual Benefit Life Insurance Company (the "Plan"). The
Rehabilitation Period will end on June 30, 1999.
Under the terms of the Acquisition MBL Life's interest in Adviser was not
included in the assets transferred to SunAmerica. MBL Life intends to divest of
its partnership interest in Adviser prior to the end of the Rehabilitation
Period.
In anticipation of the increase in the Fund's ratio of expenses to average net
assets resulting from MBL Life's and the Separate Accounts' anticipated
redemptions, FPIC agreed to assume the operating expenses of the Fund (excluding
taxes, interest, brokerage commissions, and extraordinary expenses) to the
extent such daily expenses exceeded 1.00% on an annualized basis of the Fund's
daily net assets. For the year ended December 31, 1998, such reimbursement
amounted to $35,181.
11
<PAGE>
NOTE D -- CAPITAL STOCK
A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
Year Ended December 31, 1998 1997
---------------------------- -------------------------
Shares Amount Shares Amount
------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold................................... 41,124 $ 550,220 41,036 $ 518,989
Shares issued in reinvestment of income
dividends and capital gain distributions..... 652,254 8,335,564 618,566 7,453,921
------------- ------------- ---------- -------------
693,378 8,885,784 659,602 7,972,910
Less shares repurchased....................... (508,115) (6,809,604) (247,466) (3,053,497)
------------- ------------- ---------- -------------
Net increase in number of shares outstanding
and net assets resulting from capital share
transactions................................. 185,263 $ 2,076,180 412,136 $ 4,919,413
------------- ------------- ---------- -------------
------------- ------------- ---------- -------------
</TABLE>
NOTE E -- PURCHASES AND SALES OF INVESTMENTS
Purchases and proceeds from sales of investments during the year ended December
31, 1998, other than short-term investments, aggregated $16,566,493 and
$19,780,238, respectively.
The identified cost of investments owned at December 31, 1998 for federal income
tax purposes was $44,999,065. At December 31, 1998, gross unrealized
appreciation of investments was $21,660,415, and gross unrealized depreciation
of investments was $2,233,900 resulting in net unrealized appreciation of
$19,426,515, for federal income tax purposes.
NOTE F -- SUBSEQUENT EVENT
As part of the resolution of the proceedings associated with the Plan, on
January 13, 1999, MBL Life redeemed substantially all of its investment in the
Fund.
The Order provides for the termination of the Separate Accounts at the end of
the Rehabilitation Period. In addition, the Order authorizes MBL Life to take
any and all actions necessary to facilitate the termination of the Separate
Accounts. In order to continue to maintain the Separate Accounts through June
30, 1999 in a manner consistent with their respective investment objectives,
while at the same time maintaining liquidity to deal with the anticipated
redemption requests, MBL Life has determined that it would be in the best
interest of contractholders and participants to substitute shares of an index
fund for the underlying portfolios of the Separate Accounts. On February 17,
1999, the Separate Accounts redeemed their investment in the Fund (see Note C).
The Board of Directors of the Fund is considering alternatives with regard to
the Fund, including the possible liquidation and dissolution of the Fund. Among
factors being taken into account is whether, as a result of the redemption of
Fund shares by MBL Life and the Separate Accounts, the Fund can continue to
operate in an economically viable manner, or whether the Fund will have any
business purpose once the redemptions have been completed.
- -------------------------------------------------------------------------------
12
<PAGE>
FINANCIAL HIGHLIGHTS
MBL GROWTH FUND, INC.
Selected data for each share of capital stock outstanding throughout the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year................. $ 12.17 $ 10.68 $ 10.27 $ 8.36 $ 9.55
--------- --------- --------- --------- ---------
Net investment income.............................. 0.14 0.13 0.23 0.26 0.21
Net realized and unrealized gain (loss) on
investments...................................... 2.63 3.16 2.24 2.59 (0.01)
--------- --------- --------- --------- ---------
Net increase in net assets from operations......... 2.77 3.29 2.47 2.85 0.20
--------- --------- --------- --------- ---------
Dividends from net investment income............... (0.14) (0.13) (0.24) (0.26) (0.21)
Distributions from net realized gain from security
transactions..................................... (1.74) (1.67) (1.82) (0.68) (1.18)
--------- --------- --------- --------- ---------
Total distributions................................ (1.88) (1.80) (2.06) (0.94) (1.39)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year....................... $ 13.06 $ 12.17 $ 10.68 $ 10.27 $ 8.36
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return....................................... 23.47% 31.12% 24.57% 34.75% 2.13%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net Assets, End of Year (thousands)................ $64,064 $ 57,421 $ 45,992 $ 40,151 $ 32,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Expenses to Average Net Assets(1)......... 0.80% 0.92% 0.83% 0.86% 1.13%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Net Investment Income to Average Net
Assets(1)........................................ 1.01% 1.05% 2.07% 2.73% 2.15%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Portfolio Turnover Rate............................ 29.23% 60.47% 65.37% 47.49% 78.29%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(1) Without reimbursement by distributor, the ratio of expenses to average net
assets would have been 0.86%, and the ratio of net investment income to
average net assets would have been 0.95% for the year ended December 31,
1998 (see Note C of the notes to financial statements).
See notes to financial statements.
13
<PAGE>
NET ASSET VALUES AND PAYOUTS
(UNAUDITED)
Following is a tabular illustration of the Fund's history since shares of the
Fund were first offered for sale on December 17, 1982.
<TABLE>
<CAPTION>
Per Share
----------------------------
Dividends
Net asset from net Capital
value investment gains
Year ended per share income distributions
- --------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1982 $ 10.30 -- --
December 31, 1983 12.67 $ .15 $ .05
December 31, 1984 11.20 .51 1.11
December 31, 1985 12.73 .46 .99
December 31, 1986 14.28 .38 .61
December 31, 1987 11.69 .59 1.96
December 31, 1988 14.06 .44 .385
December 31, 1989 17.18 .47 .42
December 31, 1990 15.45 .58 .25
December 31, 1991 11.00 .66 7.17
December 31, 1992 9.36 .31 2.89
December 31, 1993 9.55 .17 .91
December 31, 1994 8.36 .21 1.18
December 31, 1995 10.27 .26 .68
December 31, 1996 10.68 .24 1.82
December 31, 1997 12.17 .13 1.67
December 31, 1998 13.06 .14 1.74
- --------------------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES (UNAUDITED)
For the year ended December 31, 1998:
INVESTMENTS ADDED
AMP Inc.
Arrow Electronics Inc.
Avnet Inc.
Bankers Trust New York Corp.
Boeing Co.
Boston Chicken (bonds)
Burlington Industries, Inc.
Calmat Co.
Cirrus Logic, Inc.
Commscope, Inc.
Dun & Bradstreet Corp.
Great Lakes Chemical Corp.
HBO & Co.
Information Resources, Inc.
Johnson & Johnson
Loewen Group, Inc.
Louisiana-Pacific Corp.
MediaOne Group, Inc.
Medpartners, Inc.
Meyer, Fred Inc.
National Semiconductor Corp.
Northern Telecom Ltd.
PennzEnergy Co.
Pennzoil-Quaker State Co.
Pepsico, Inc.
Ralston Purina Co.
Safeco Corp.
Seagate Technology, Inc.
Sprint PCS
St. Paul Companies, Inc.
T. Rowe Price Associates, Inc.
Triquint Semiconductor, Inc.
Tupperware Corp.
Union Pacific Resource Group, Inc.
INVESTMENTS ELIMINATED
Adobe Systems, Inc.
Access Health, Inc.
Bay Networks, Inc.
Calcomp Technology, Inc.
CII Financial, Inc. (bonds)
Cooper Companies, Inc.
Dravo Corp.
Duke Power Co.
Eastern Utilities Assoc.
Imation Corp.
Integrated Systems, Inc.
Intel Corp.
Lubrizol Corp.
Mazel Stores, Inc.
National Education Corp. (bonds)
Olsten Corp.
Pete's Brewing Co.
Petroleum Helicopters, Inc., voting
St. Paul Companies, Inc.
USF&G Corp.
Xircom, Inc.
14
<PAGE>
MBL GROWTH FUND, INC.
520 Broad Street
Newark, New Jersey 07102-3111
1-800-559-5535
FUND DIRECTORS
Horace J. DePodwin
Herbert M. Groce, Jr.
Jerome M. Scheckman
INVESTMENT ADVISER
Markston Investment Management
1 North Lexington Avenue
White Plains, New York 10601-1702
DISTRIBUTOR
First Priority Investment Corporation
520 Broad Street
Newark, New Jersey 07102-3111
1-800-559-5535
CUSTODIAN and TRANSFER AGENT
State Street Bank & Trust Co.
P.O. Box 8500
Boston, Massachusetts 02266-8500
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
THIS REPORT HAS BEEN PREPARED FOR THE SHAREHOLDERS OF THE FUND. IT IS NOT
AUTHORIZED FOR OTHER DISTRIBUTION UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT
PROSPECTUS, WHICH INCLUDES ADDITIONAL INFORMATION ABOUT THE FUND.
FS-629 (2-99)
15152
Annual Report
December 31, 1998
MBL GROWTH FUND, INC.
Distributed by
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